Decisions about energy policy, important as they are to consumers and taxpayers, should evolve from honest, level-headed discourse. The US instead gets this: “As gas prices rise, so do Big Oil’s efforts to deceive the American public.”
The statement came Apr. 10 from Rep. Bart Stupak (D-Mich.), sponsor of legislation to make “price-gouging” illegal (OGJ Online, Feb. 28, 2007). Stupak was responding to a study by W. David Montgomery of CRA International for the American Council for Capital Formation (ACCF). The study likens price-gouging laws to price controls, which it estimates would increase the economic losses of a supply disruption as large as those following Hurricanes Katrina and Rita in 2005 by $1.9 billion (see p. 26). It says past price controls have aggravated shortage and worsened conditions for consumers. And it asserts that making price increases that occur during energy disruptions criminal offenses would discourage delivery of the costly replacement supplies consumers need.
Dislikes implications
Stupak naturally dislikes the implication that his price-gouging bill would hurt consumers. Here’s the rest of his reasoning from the Apr. 10 statement: “It is not surprising that an organization that receives hundreds of thousands of dollars of funding from Big Oil would produce a study arguing against new price-gouging laws. The fact of the matter is that last May the Federal Trade Commission examined the actions of petroleum producers and refiners following Hurricane Katrina and found that they were gouging consumers. However, even when the federal government found gas price-gouging, they were unable to act because the current law does not adequately address price-gouging.”
Even by the low standards of politics, Stupak’s argument is flimsy.
ACCF receives financial support from many companies and industries. If its opinions on price-gouging should be discounted on the basis of contributions it receives from oil and gas companies, so should Stupak’s. Since 1992, according to the Center for Responsive Politics, he has received $59,550 for his political campaigns from the oil and gas industry. By this logic, Stupak’s opinions on labor, health, and construction are even more suspect. He has received $376,250 from industrial unions, $323,207 from health professionals, and $318,350 from building trade unions.
What Stupak calls “the fact of the matter” about the FTC investigation is incorrect. FTC did not find that “petroleum producers and refiners” were gouging consumers. It didn’t investigate producers and had no reason to do so; producers don’t sell anything to consumers. And while the FTC found a handful of instances in which actions by refiners seemed to meet a technical definition of “gouging,” it pointed out that emergency conditions mitigated the apparent offenses. “Our investigation uncovered no evidence indicating that refiners make product decisions to affect the market price of gasoline,” the commission said in a summary of its report. “Instead, the evidence indicates that refiners responded to market prices by trying to produce as much higher-valued products as possible, taking into account crude oil costs and other physical characteristics.”
The only technical “gouging” the FTC investigation uncovered was by a small number of individual retailers-not producers and refiners-and was limited in extent. “Local or regional market trends, however, seemed to explain the price increases in all but one case,” it said.
More problems
Contrary to the implication of Stupak’s statement, FTC made no claim about limits to its enforcement powers due to the inadequacy of law. An FTC statement accompanying the study in fact described the report as concluding “that federal gasoline price-gouging legislation, in addition to being difficult to enforce, could cause more problems for consumers than it solves and that competitive market forces should be allowed to determine the price of gasoline drivers pay at the pump.”
Stupak’s statement is wrong on all counts. Maybe he’s unconscionably ignorant about fuel markets and a poor reader. Or maybe he’s as deceitful as he unfairly accuses “Big Oil” of being. Either way, his pronouncements and his legislation amount to thorough disservice to American gasoline consumers. They merit no serious attention except as examples of how energy deliberations should not proceed.
